Scott v Page - [2003] FMCA 439

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SCOTT v PAGE

[2003] FMCA 439

BANKRUPTCY – Disposition of proceeds of sale of property owned by Bankrupt to spouse – whether main purpose to prevent transferred property becoming divisible among creditors

Bankruptcy Act 1966, ss.82(2), 120, 120(3), 120(7)(a),121, 121(1)(b). 121(2), 121(4)
Family Law Act 1975, s.86

Aliferis v. Kyriacou (2000) 1 VR 447
Re Doughty Bros (1895) 6 BC (NSW) 2
Re Saebar, Official Receiver & Saebar (1971) 18 FLR 317

Applicant:

DAVID HENRY SCOTT AS TRUSTEE OF THE BANKRUPT ESTATE OF DORIS PAGE

Respondent:

KEVIN EMMETT PAGE

File No:

MZ 155 of 2000

Delivered on:

7 October 2003

Delivered at:

Melbourne

Hearing Date:

2, 3, 15 & 16 October 2001

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr N Franzi

Solicitors for the Applicant:

Irlicht & Broberg

Counsel for the Respondent:

Mr R Cameron

Solicitors for the Respondent:

Barrett Walker & Co

ORDERS

IT IS DECLARED THAT

The disposition effected by transfer of the amount of $55,800.06 on 25 March 1994 from the trust account ledger of solicitors De Marco & Co. standing to the credit of the Bankrupt to the trust account ledger of solicitors De Marco & Co. standing to the credit of the Respondent is void as against the Applicant pursuant to s.121 of the Bankruptcy Act 1966.

IT IS ORDERED THAT

The Respondent pay the Applicant the amount of $55,800.06 together with interest fixed in the sum of $19,766.29.
The Respondent shall pay the Applicant’s costs including any reserved costs in accordance with Schedule 1 of the Federal Magistrates Court Rules to be taxed in default pursuant to Order 62 of the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ 155 of 2000

DAVID HENRY SCOTT AS TRUSTEE OF THE BANKRUPT ESTATE OF DORIS PAGE

Applicant

And

KEVIN EMMETT PAGE

Respondent

REASONS FOR JUDGMENT

Introduction

David Henry Scott as the Trustee of the Bankrupt estate of Doris Page (“the Applicant”) applies to the court for a declaration pursuant to ss.120 and 121 of the Bankruptcy Act 1966 (“the Bankruptcy Act”) in relation to the disposition of property of the Bankrupt to Kevin Emmett Page (“the Respondent”) in March 1994.
The proceedings in this matter were somewhat disjointed. The first two days of the hearing included opening submissions and evidence. The matter was then adjourned for some two weeks and listed for further hearing of final submissions. On the adjourned date, due to a misunderstanding by one counsel, the matter did not proceed and was then further adjourned to the next day to enable both counsel to provide final submissions. Both relied upon an outline of facts and contentions and otherwise made oral submissions. Due to the lengthy delay in the delivery of this judgment I had considered whether it was appropriate to give the parties an opportunity to make further updated submissions and if necessary call further evidence. I have decided in the circumstances that I am able to rely upon my own contemporaneous notes of the evidence together with a thorough review of the transcript in order to reach a decision in this matter notwithstanding the lengthy delay in delivering the judgment. Fortunately by reference to my notes and the transcript any adverse findings drawn against witnesses arise substantially from the evidence given rather than the demeanour or other observations the Court may have made during the course of the trial. Conclusions drawn arise from the evidence given rather than the way the evidence was presented or the demeanour of the witnesses.
The orders sought are as follows:
“1.A declaration that the disposition effected by transfer of the amount of $55,800.06 on 25 March 1994 from the trust account ledger of solicitors De Marco & Co. standing to the credit of the Bankrupt to the trust account ledger of solicitors De Marco & Co. standing to the credit of the Respondent is void as against the Applicant pursuant to

section 120 or alternatively section 121 of the Bankruptcy Act 1966 (‘the Act’).
2.An order that the Respondent pay the Applicant the amount of $55,800.06.
3.Interest on the said amount from 25 March 1994 to the date of judgment.
4.Costs.”
Doris Page (“the Bankrupt”) became bankrupt on 11 August 1997. The order was made upon a creditors petition which had been filed by Victor Tadros Matta and Nadia Fathi Matta. That creditors petition arose from a bankruptcy notice which in turn relied upon a judgment entered in the County Court on 9 August 1996 for the sum of $200,000 interest and costs to be taxed against the defendants. The County Court writ had been issued on 9 November 1993 claiming a sum of no more than $200,000 on behalf of Victor Tadros Matta and Nadia Fathi Matta against Waytech Pty Ltd (“Waytech”), Docker Pty Ltd (“Docker”) and the Bankrupt. The claim related to a transaction which had occurred in relation to a business on or about 15 April 1993. The Bankrupt had been manageress of a business conducted by Waytech and Docker, though she was not a director or shareholder of either company. The Respondent was a director of Waytech.
As indicated, the Respondent in his capacity as Trustee of the Bankrupt estate, has pursued the application before this court.
Before March 1994, the Bankrupt had been the owner of the property at 89 Evell Street, Glenroy (“the Glenroy property”). The Glenroy property was sold by the Bankrupt with settlement taking place on or about 16 March 1994. The proceeds of sale were received by De Marco & Co., solicitors acting for and on behalf of the Bankrupt. As at 16 March 1994, the amount standing to the credit of the Bankrupt in the trust account ledger of De Marco & Co. relating to the sale of the Glenroy property was $121,236.98.
It is not disputed that on or about 18 March 1994 an amount of $65,436.92 was forwarded to the Bankrupt by De Marco & Co. by trust account cheque drawn on the Bankrupt’s trust account ledger. At all material times De Marco & Co. acted for and on behalf of the Bankrupt and the Respondent. The firm had acted for the Bankrupt in defence of the County Court proceedings and also acted for the Respondent in relation to the purchase in his name of a property at 163 Greenvale Road, Greenvale (“the Greenvale property”).
On or about 25 March 1994, De Marco & Co., at the request and with the authority of the Bankrupt, transferred an amount of $55,800.06 from the trust account ledger to the credit of the Bankrupt to the trust account ledger to the credit of the Respondent in connection with the purchase of the Greenvale property. This meant that the sum transferred was then available to fund the purchase of the Greenvale property by the Respondent.
During the period 25 March 1994 and 19 August 1997, an amount standing to the credit of the Respondent in the ledger of De Marco & Co. relating to the Greenvale property was fully disbursed by payments for the purchase of that property and associated costs and expenses. The Trustee has asserted that the transfer of funds from the Bankrupt to the Respondent was designed to defeat the claims of the creditors of the Bankrupt as the Bankrupt at that stage was well aware of the claim by Mr and Mrs Matta in connection with the sale of the business.

The Evidence

The Applicant gave evidence and adopted an affidavit sworn by him on 11 September 2000. The affidavit was subject to objections to parts of the affidavits including paragraphs 3(i) and 3(j). Both paragraphs were omitted from the Exhibit.
During the course of his evidence Mr Scott agreed that in determining whether or not the Bankrupt was insolvent he had treated the judgment being a debt due though acknowledged that it was not obtained until 1996. Mr Scott conceded that he was unable to comment on the solvency of the Bankrupt as at March 1994. Mr Scott was not aware of any documents which would suggest that doubts had been raised about the validity of the claim against the Bankrupt which had been the subject of County Court proceedings.
The parts of the affidavit adopted by Mr Scott which became relevant relate to the formal history referred to in the background in this judgment.
The Respondent gave evidence and relied further upon evidence from the Bankrupt, Mr De Marco and an accountant Mr Pereyira. The main thrust of the evidence called was to establish that in relation to the s.120 issue there had been adequate consideration for the transfer of the money and in relation to the s.121 matter that the transfer was not done with the intention of defeating the interests of creditors.
The Respondent relied upon an affidavit sworn by him on 28 March 2001 as grounds upon which he intended to oppose the application. In that affidavit the Respondent states that he and the Bankrupt were married in 1988, having commenced living together in 1984. At the time of their marriage, the Bankrupt already had two children from a previous marriage. After their marriage a son was born of the relationship and the parties resided at the Glenroy property. According to the Respondent the parties stayed at the Glenroy property together until March 1994. In his affidavit he suggests that in or about August 1994 he and the Bankrupt separated and it was upon separation that they agreed to sell the Glenroy property and divide the proceeds. It is significant to note, however, that both the Respondent and the Bankrupt claim that at the time of the sale of the Glenroy property, the reason why the Respondent received the sum of $55,800.06 was due to advice which had been obtained from Mr De Marco, the solicitor who had acted for and on behalf of both the Bankrupt and the Respondent. It is claimed that the solicitor offered advice to the Respondent which effectively prompted the distribution of the proceeds of sale in the manner described. It is claimed by the Respondent that he did not seek advice from Mr De Marco, but that rather Mr De Marco volunteered the advice that the Respondent was entitled to claim a sum from the proceeds of sale of the Glenroy property due to the contribution the Respondent allegedly made for the maintenance and upkeep of the home. It is common ground that Mr De Marco at all material times was acting for both the Bankrupt and the Respondent, yet was prepared to advise the Respondent that he should make a claim against the Bankrupt. It is also common ground that Mr De Marco does not now have any record of the advice, did not open any file in relation to the advice, was not asked to advise the Respondent, was not retained by the Respondent to give advice and did not at any time prepare any written advice or charge a fee for such advice. There is no maintenance agreement between the Bankrupt and the Respondent pursuant to s.86 of the Family Law Act 1975 or indeed any other agreements or orders pursuant to that Act. There have been no proceedings by the Bankrupt against the Respondent. There has not been any application for dissolution of the marriage as at the date of hearing of this matter.
The Respondent in his evidence indicated that he and the Bankrupt had been trying to reconcile for a number of years. He conceded in his evidence that since the date of the sale of the Glenroy property he and the Bankrupt, together with the two children of the Bankrupt’s former marriage and the child of the union between the Bankrupt and the Respondent shared one bedroom for a period of time, which appears to be from March through to at least September 1994 at the Coburg residence of the Respondent’s parents. At that time the two daughters of the Bankrupt were then aged 22 and 19 years and the son was 4 years old. According to the Respondent the four adults and one child resided in one bedroom, sleeping in separate single beds.
It is not clear to me as to why such extraordinary living arrangements should be put in place. It does become clear, however, if it is part of a pattern of conduct by the Bankrupt to ensure that there were no assets and/or proceeds of sale of assets which could possibly be available to the creditors named in the Bankruptcy notice.
During the course of his evidence the Respondent was asked a number of questions about the relationship between the Bankrupt and himself including their sexual relations since 1993. At one stage he indicated there had been no sexual relations and then further in evidence stated it may have occurred once and further went on to say, ”It hasn’t been much at all”. During his evidence he indicated he made demand for half the equity of the Glenroy property on advice of his solicitor even though at the time the solicitor was acting both for himself and the Bankrupt. He agreed the Glenroy property had been put on the market in January 1994 and a County Court Writ against his company had been issued in November 1993. A contract note for the sale of the Glenroy property by the Bankrupt which shows an offer was accepted by the Bankrupt on 15 February 1994 was tendered as an exhibit. When asked whether he had any discussions with the Bankrupt about whether he was going to sell the property in Glenroy the Respondent answered, “Probably would have, I guess”. He was similarly vague in answer to a question concerning an interest that he and the Bankrupt may have had in a trucking business that the Respondent conducted. When asked whether the Bankrupt was a “50% partner” with the Respondent in the trucking business, he answered, “I guess so”. The Respondent was referred to tax returns for the period 1985 to 1991. When asked whether the earnings were true and correct in relation to the Respondent he answered, “I guess they must be”. When further asked “But you don’t know?” he answered, “No, sorry”. His attention was drawn to the income in the years 1986, 1987, 1988 and 1989 all being for the sum of $22,000 and was asked, “How is it you always earn the same amount each year?”. He answered, “I can’t recall”.
The Respondent was cross examined about his contribution to the work he had contributed to the Glenroy property as this had been the basis of his entitlement to 50% of the proceeds of sale. In relation to the advice he received from Mr De Marco he said, “When he gave me that advice it was because of what I put into the place”. He was then asked, “Did you form a view whether you were entitled to it or not, an independent view?” He answered, “I guess so, yes.” He was then asked certain questions about the extent to which he contributed including tiling work, painting and renovating the kitchen. He stated that he had a small part in “fitting the cupboards”. He agreed that a tradesman did some of that work but could not say how much, he could not remember whether the oven had been changed, and could not remember exactly what work had been undertaken by a tradesman. He claimed that he had to pay to get the kitchen and was then asked, “How did you pay?” He answered, “It might have been – I can’t recall exactly how we paid, there was a lot of renovations in the house.” The following exchange then occurred:-
“Well, we're in the kitchen. How did you pay? You can't remember who did some of the work, whatever it was?---It might have been cash, I'm not sure.
Could have been cash, you're not sure. What else could it have been?---Just funds I had.
In the bank?---It would have been from the bank, yes.
Because, you see, how much do you say you had to pay to get the new kitchen - how much?---The whole kitchen?
Yes, excluding the painting?---I can't - I think it was around 9 or 10 thousand.
9 or 10 thousand?---9 or 10, I can't remember, sorry.
Did you get any receipts from anybody?---I didn't think to.”
The following further exchange occurred in relation to improvements to the bathroom:-
“How much did you pay the plumber?---I can't remember.
You told Mr Pereyira that you spent $10,000 on renovating the bathroom in 1991?---I guess so.
It's either yes or no, do you recollect it?---I was a - it might have been about 10, I guess.
I suppose the question is unfair, you have no recollection of talking to Mr Pereyira, do you?---No.
You don't have recollection of talking to anybody saying, "Look, I, out of the trucking business paid $10,000 to renovate the bathroom in 1991." Do you have a recollection of telling anybody that?---I can't remember”
During the course of cross examination the Respondent was asked questions concerning his knowledge of the County Court proceedings and confirmed that he remembered it was due to a dispute over the purchase of a shop. He agreed his current occupation was driving instructor and the impression gained by the Court was that although he had difficulty understanding legal documents he did not have difficulty understanding the main thrust of the questions concerning the County Court claim. He understood that the current claim was about the money advanced to him by the Bankrupt when the house was sold.
During the course of his evidence further questions were asked concerning the advice given to him by Mr De Marco. The following exchange occurred:-
“My note is that "at one stage you agreed that Mr De Marco volunteered the suggestion to you about claiming a half share without you seeking advice from him." You didn't ask him for the advice. He volunteered the suggestion?---He told me what I could do, yes.
Without you asking him?---That's right.
He told you. Right, now, it's in that context you could ask your question.
MR CAMERON: I want to ask you, you say that he gave you that advice without you asking for it. Is that right?---That's right.”
Mr Joseph De Marco gave evidence. He had not sworn an affidavit. He produced a file in relation to the sale of the Glenroy property and confirmed that he had acted for the Respondent and the Bankrupt in relation to the sale of the property. He confirmed receiving monies arising from the sale in his trust account and confirmed the authenticity of trust account ledger cards which had been exhibited to the affidavit of Mr Scott. He explained the transfer of funds from the sale file of $55,800.06 as follows:-
“Are you able to explain to the court how that happened?---That happened after the sale was effected. Basically what happened was that Mr and Mrs Page were having some problems. They approached me and said that they were having problems, they were going to split up, and they wanted to sort out the settlement of the sale proceeds. There was some discussions ‑ ‑ ‑
When you say "sort out the settlement of the sale proceeds ‑ ‑ ‑"?---Settlement basically. They wanted to go their own individual ways apparently.
That was in the matrimonial sense, was it?---In the matrimonial sense, and there was some brief discussions about it, and it was agreed to split it about half each I think, something like that.
Did you meet Mr and Mrs Page together or separately?---I can't recall specifically if they were together or not. I would have thought more likely separately because normally they were working different times and that. My recollection is that in most cases I would see them different times for different purposes, different reasons, but I haven't got a specific diary note and I haven't got a specific recollection of a particular date.
Can you recall what advice if any you gave them in respect to the split-up of the proceeds?---I basically advised them they should split it half each.
Can you recall why you did that?---It was after discussing with them, my view was that they should be splitting it. I think she was working in the shop long hours somewhere along the line, and she was home more often than she was, there were kids from her first marriage that he was involved with, and other things like that.
Did you take a view as to the merits of making a settlement along those lines?---Mm'hm.
What view did you form?---I thought that was a fair settlement.

I should point out I didn't have a matrimonial file at all in this

I just only arranged it out of the finalisation of the conveyancing matter.”

In relation to the County Court proceedings where he acted for the Bankrupt and Waytech, Mr De Marco expressed the view that the Bankrupt had “a very good defence”. He agreed that the Bankrupt did not defend the proceedings at trial and explained that that was because he had not been provided with any funds and he then withdrew as practitioner. He expressed the view that the Bankrupt “would have worn the case” and that he advised her of that view.
Under cross-examination Mr De Marco agreed that he incorporated Waytech and had arranged it so that the Bankrupt was not a director. The following exchange of evidence occurred:-
“And Mrs Page is on oath saying that you arranged it so that she was not a company director?---Yes.
Can you tell the court why?---Do I recall why?
Yes?---At this stage no.
Would it have had anything to do that all the assets that the Pages had were in her name, and she had purchased them before the marriage?---I wouldn't have any idea if that was the reason.
Would it be fair to say that if you were advising people to become directors, you would put people who wouldn't be exposed financially?---You would certainly look at that, yes.
That would be a consideration, and it wouldn't be just a coincidence that it was Mr Page who became the director, and his daughter, and not Mrs Page who had the house in her name. That wouldn't be a coincidence, would it?---I can't say.”
Mr De Marco was further asked whether he had a conflict of interest in acting for both the Respondent and the Bankrupt and giving advice to both of them in relation to family law matters. He claimed he did not open a file and denied that there was any conflict. He specifically stated the following:
“I don’t in a situation where there’s a fairly simple matrimonial situation. There’s two clients who want to resolve the matters without being involved in any litigation and who say, ‘This is what we want to do. This is the situation. What’s your advice?’ and in that situation I don’t believe there is a substantial conflict there.”
As to whether or not the Respondent sought advice from Mr De Marco the following evidence is relevant from Mr De Marco,
“Mr Page says he didn’t come to you for advice about obtaining a share of a house. He says you volunteered. He says you actually took it on yourself to take him aside and say, ‘Look, do you want to get half the house?’ I didn’t come there for that purpose?---I can’t dispute that. As I say, I haven’t got a specific recollection of the particulars that happened or didn’t happen.”
The unorthodox nature of the solicitor client relationship on the family law issue may be illustrated by the following evidence:-
“Mr Page says he didn't come to you for advice about obtaining a share of a house. He says you volunteered. He says you actually took it on yourself to take him aside and say, "Look, do you want to get half the house?" He didn't come there for that purpose?--

I can't dispute that. As I say, I haven't got a specific recollection of the particulars that happened or didn't happen.
Tell us how you analysed it fifty-fifty. What sort of way did you do that? What did you take ‑ ‑ ‑?---I can't - well, at the time ‑ ‑ ‑
You must have taken notes?---No.
For example, the length of the marriage - was it a short marriage or a long marriage?---No.
And the fact whether or not he'd lived there rent free for 10 years, did you take that into account?---I can't recall all the facts that were taken into account.
But you must have taken something into account to come to fifty-fifty?---This is something that happened many years ago.
You wouldn't crucify a wife, would you?---No.
You wouldn't take advantage of a wife who says in her affidavit that she was emotionally troubled because of a previous divorce. What did you go through?---I can't go through all the factors that went through my mind at the time.
Did you make any notes? No? Was it a short ‑ ‑ ‑?---There's no notes on any of the files.
No, there's no notes. Was it a short meeting?---It would have been a short meeting, yes.”
Mr De Marco was asked a number of questions about his knowledge of company directors and ultimate care if someone was declared Bankrupt. The following relevant exchange occurred:-
“You knew that then. You knew that if Mrs Page didn't win and went bankrupt, then that this property transfer could be attacked. You knew that, didn't you?---The property was sold.
The transfer of the money could be attacked. You knew that?---Yes, I would have been aware of that.
That's why, sir, I find it extraordinary in those circumstances that you did what you did, that you advised Mrs Page of what you were aware of?---I've got no idea.”
Mr De Marco confirmed that the Glenroy property had been purchased by the Bankrupt in 1980 and she became the sole registered proprietor in December of that year. It was against the chronology of acquisition of the property and lack of file notes that the following exchange occurred:-
“MR FRANZI: No file note, no. You didn't think in the circumstances where there was a County Court action for $200,000 against Mrs Page, you didn't think it prudent that she ought to get independent advice?---That she should have got independent advice?
Yes?---Possibly with the benefit of hindsight and with today's environment, possibly yes. But in those days, no.
HIS HONOUR: When you say that - you said that once before. What changed? I mean, I listen carefully to your answers. This was back in the 1990s, 93-94. Solicitors have been acting in conveyancing and family law matters well before that. What changed? Was there a conflict of interest?---The change has been the attitude - sorry, the change has been things like Amadio. The conflict of interests rules hadn't been tightened up and the more likelihood that someone will turn around and sue us if ‑ ‑ ‑
But part of the evidence in this case, Mr Franzi - I don't mean to cut across but it's coming to the end of the day. But I'm just curious about this part of it.
On one version of the evidence, if I were to accept the evidence of one witness, it would be that you told that witness or suggested to that witness that he should make a claim against another party who was also then your client. Putting aside Amadio and anything else, nothing has changed in the 90s that would suggest that one would advise client B to take action against client A?---I'm not sure if it would have been put in those words.
No, I'm not saying you did, but that's part of the evidence that I have to deal with. If that were the case you'd understand that is a fundamental conflict?---In that case, yes, definitely. My understanding was that they were separating and they were consenting to a division of property.”
During the course of his evidence a cheque from Mr De Marco’s trust account was produced made payable to Waytech which had endorsed on the reverse “Please pay K & D Page”. The evidence of Mr De Marco about the instructions for that endorsement seemed vague. He had agreed that the Bankrupt had given him most instructions in relation to company matters on behalf of Waytech even though he knew at the time she was not a director of the company. He agreed that he did not have any file note or written instructions at all. He was unable to say who the proper officer of Waytech would have been at the time to authorise disbursement of funds from the trust account of funds which were in the form of a cheque made payable to Waytech.
The Bankrupt gave evidence and adopted an affidavit sworn by her on 27 September 2001. She agreed that she purchased the Glenroy property in her own name having acquired her former husband’s share in that property and otherwise confirmed the chronology to which reference has already been made. She gave evidence about what was alleged to have been spent on improving the Glenroy property but was unable to produce any documents or receipts verifying that expenditure. Under cross examination she agreed she had not met Mr Pereyira to give him information and that all the information was provided via her solicitor. The Bankrupt stated that difficulties in the marriage occurred in late 1993 and they decided to go separate ways after speaking to Mr De Marco. She agreed that they had still after the sale of the Glenroy property occupied one bedroom for five or six months. The Bankrupt agreed that an amount of $65,000 being part of the proceeds of the sale of the Glenroy property had been dissipated by her by May 1995. An amount of $15,000 was spent by the Bankrupt on her daughter’s wedding in September 1995.
Under cross examination the Bankrupt indicated that she was aware of the County Court proceedings and that ultimately a judgment was entered against her and claims that she did not have the funds to defend the case. She agreed she had given gifts to her daughters of some $10,000 between December 1993 and prior to the judgment in the County Court. The following evidence was given:-
“What counsel is asking you is that if you had, on your evidence, at least $10,000 available to give to your daughters, and at the same time you had a County Court action against you personally and two companies, which you say you didn't defend because you had a lack of funds, did you not think to apply that at least $10,000 to the defence of the case against you in the County Court?---No, I didn't.”
In her evidence the Bankrupt confirmed that another property at Lot 16 Vaughans Lane Heathcote (the Heathcote property) was sold for $20,000 with settlement on 5 June 1995. It was agreed that the property had been purchased by the Bankrupt and the Respondent for $39,000 in June 1992 thereby resulting in a loss of at least $19,000. It was noted the sale of the Heathcote property occurred a few months prior to the first hearing in the County Court in November 1995.

Mr Egbert Joseph Pereyira

Mr Pereyira adopted an affidavit sworn 13 September 2003 which annexed to it a report in relation to the expenditure of the Respondent on the costs associated with the care and maintenance of the family.
In his affidavit Mr Pereyira had concluded that the Bankrupt and the Respondent had spent most of her income in providing care for their children and concluded that the Respondent contributed approximately 60% of the costs of household expenses and an amount of $31,824 towards the care of two children from the Bankrupt’s previous marriage. The general conclusion drawn in the report was that the Respondent was the “principal provider of financial assistance to the cost of raising the three children and household maintenance.” Under cross examination Mr Pereyira confirmed an understanding that the Glenroy property was a jointly owned property and the fact that it was in reality owned by the Bankrupt would not alter his report as the report concentrated on the cost of bringing up children and maintenance of home as if they were living as a family. He agreed however that if the parties were paying rent then the financial situation would have been more difficult as there would have been a shortfall in 1993 and 1994. The fact that the property was owned by the Bankrupt thus alleviating the need for rent did not apparently change the assessment made by the witness. He had relied upon instructions that the Respondent had paid all living and household expenses. He rejected the suggestion that that was nonsense. He agreed that he had not taken into account the contribution of the Bankrupt in providing accommodation rent free to the Respondent by virtue of the fact that she introduced to the marriage the Glenroy property purchased prior to the date of marriage. When asked whether that would be a relevant matter to take into account in assessing the contributions the witness stated, “Look I don’t know how to answer that question. That was not my instructions”.
Further questions were asked of the witness by the Court at the end of his evidence where the following exchange occurred:-
“HIS HONOUR: Just a couple of matters. When you come to prepare the material based upon the information provided to you, I take it from the tables you conclude that there's two adults and three children?---That's correct.
Did you get any details about the ages of the children?---No, I did not obtain any details.
Does it alter your process at all if I were to tell you the two girls who were the children of the former marriage of Mrs Page as far as I know as at 1994 were aged 22 and 18 or 19 respectively. In other words they were not under 18?---Yes.
The Institute of Family Studies makes distinctions about children under 18 and over 18, does it not?---It does. There are actually three models that the studies were based on and I've selected the second model that actually makes very little distinction. It does have an age bracket distinction between the cost of maintaining children and that variation is insignificant. As long as the children were living in your household, the variation was insignificant.
Assuming they're not earning income?---Assuming that they are not earning income, that's correct.
Anything arising?
MR FRANZI: The evidence actually is that they were earning income. You weren't given those instructions?---No, I wasn't.”

Reasoning and findings

For the Applicant to succeed pursuant to s.120 of the Bankruptcy Act it needs to be established that there is a transfer of property by a person who becomes Bankrupt and that the transfer took place in the period beginning five years before the commencement of the Bankruptcy and that the transferee gave no consideration or less value than the market value of the property. Pursuant to s.120(7)(a) a transferred property includes a payment of money and I accept in the present case there has been a transfer. The transfer was made on 25 March 1994 and the date of the act of bankruptcy was 6 November 1996 with the sequestration order being made on 11 August 1997.
It is important to note that the Respondent is entitled to rely upon what might be described as a Defence under s.120(3) by establishing the transfer took place more than two years before the commencement of bankruptcy and that the transferee proved at the time of the transfer the transferor was solvent. There is no dispute that the transfer took place more than two years before the commencement of the bankruptcy. The real issue is whether the Respondent has proved that at the time of the transfer the Bankrupt was solvent.
In my view the evidence in relation to consideration in this matter presented on behalf of the Respondent essentially involves an unsatisfactory analysis by Mr Pereyira concerning past contributions by the Respondent to the marriage. The analysis was flawed to the extent that it failed to consider the fact that the Bankrupt had introduced into the marriage the subject property and that at the time of the transfer there was no consideration at all advanced by the Respondent to the Bankrupt.
The analysis by Mr Pereyira was an artificial analysis and an unsuccessful attempt to establish some constructive trust based upon a retrospective analysis of past contributions. The factual basis for those past contributions depended largely upon the vague unsatisfactory nature of the evidence of the Respondent in relation to not only regular contributions towards the household but also what I find to be the vague and somewhat spurious evidence concerning renovations. The one fact that remains clear in the present case is the introduction into the marriage of the property previously acquired by the Bankrupt with no contribution at all from the Respondent and having regard to the chronology of events a transfer for no consideration occurring at a time when I am satisfied that there was a perception that it would be in the interests of the parties for the Bankrupt to divest herself of any property interests for reasons which become more relevant when considering s.121 of the Bankruptcy Act.
On the issue of solvency it is my view that there is an onus on the Respondent to establish that the Bankrupt was solvent at the time when the relevant transaction took place. Whilst I have some reservations about the assessment made of the Bankrupt’s financial circumstances, it is clear that she was at least facing the prospect of a significant judgment in the County Court based upon a claim for unliquidated damages for breach of provisions of the Trade Practices Act. On balance however that appears to be at that time the only outstanding potential creditor. It was submitted by the Respondent that the potential claim would not constitute a provable debt under s.82(2) of the Bankruptcy Act and at best it would be regarded as a speculative claim for unliquidated damages (see Aliferis v. Kyriacou (2000) 1 VR 447).
It is interesting to note that the Bankrupt did not give evidence that she was in fact able to pay her debts as and when they fell due at the relevant time. Counsel for the Applicant submitted that the contingent liability arising out of the County Court action would make the Bankrupt insolvent at the relevant time. It was submitted the test for insolvency is to be applied at the time of making the transfer and that solvency must be absolutely established (see Re Doughty Bros (1895)

6 BC (NSW) 2). As indicated contingent liabilities are considered in assessing liability through a transferor to pay his or her debts (see Re Saebar, Official Receiver & Saebar (1971) 18 FLR 317). The Court was referred to Hoare J in Saebar’s case at page 322 where His Honour states the following:-
“I do not think there is anything in that case to indicate that the subjective belief of the settlor has any relevance in determining whether a prospective liability should be taken into account when determining the solvency of the settlor. It would seem that the correct approach is to consider the whole of the circumstances and if the liability can be regarded as purely speculative and without any real likelihood of liability being established then the liability can be ignored … However if there is a real likelihood of the prospective liability becoming in due course an actual one then that liability must be taken into account.”
It was submitted on behalf of the Applicant that given the short time period between the filing of the Defence in the County Court action and the transfer the Court should conclude that the County Court action was something more than being simply speculative despite the evidence of Mr De Marco.
Whilst I have significant reservations about the Bankrupt’s solvency at the time of the transfer and despite my view that the pending proceedings could be regarded as more than speculative I am not prepared to find on the basis of that potential claim as at the date of the transfer that there is sufficient evidence before the Court to establish that the Bankrupt was insolvent at the relevant time. Therefore the Respondent is able to rely upon s.120(3) of the Bankruptcy Act and the claim arising out of s.120 should fail.
The claim arising out of s.121 is more problematic. In my view, the conduct of disposing of the proceeds of sale of the Glenroy property while living in one bedroom of the Coburg residence, disposing as she did of the proceeds of sale by way of gift and/or pre-paid weddings for her daughters, the Bankrupt has conducted herself in a manner which was designed to ensure there were no funds available to be recovered by the creditors. I further accept that the sale of the Heathcote property provides evidence of the disposal of an asset at a significant loss which is consistent with behaviour of the kind designed to ensure that no funds are available to be recovered by creditors.
The evidence of the Bankrupt, together with the evidence of the Respondent in relation to the separation and the disposal of the assets is evidence which I reject. I reject the suggestion that the parties separated and further reject the suggestion that the distribution of the proceeds of sale of the Glenroy property were in any way the legitimate response to properly considered legal advice as to the Respondent’s entitlement.

On any analysis, the Respondent was not entitled to the sum he received.
In my view, the arrangements that were put in place by the Bankrupt and the Respondent clearly constituted a sham and there is sufficient evidence before me to draw the conclusion that in all the circumstances that sham was aided and abetted by the solicitor Mr De Marco.
The elements of s.121 include that there was a transfer of property by a person who later becomes Bankrupt and that the property would probably have become part of the transferor’s estate and would probably have been available to creditors if the property had not been transferred. Further, it must be established that the transferor’s main purpose in making the transfer was to prevent the transferred property from becoming divisible amongst the transferor’s creditors or to hinder or delay the process of making the property available for division amongst the transferor’s creditors.
It is noted that s.121(2) deems the transferor’s main purpose can reasonably be inferred to be that as defined in s.121(1)(b) if at the time of the transfer the transferor was or was about to become insolvent. In the circumstances I have not found that the transferor was then insolvent but I am satisfied to the extent that I am required that the deeming provision of s.121(2) would apply in the sense that the contingent liability where there was a real risk of a judgment in excess of $200,000 would have then made the Bankrupt insolvent and to that extent I conclude that she was at the time of the transfer “about to become insolvent”. In the alternative without relying upon that provision I am otherwise satisfied, applying s.121(1)(b) in the light of my analysis of the evidence and the unsatisfactory nature of the Respondent’s evidence including that of the then solicitors that I am able to conclude that the main purpose of the transfer was to prevent the transferred property from becoming divisible among the transferor’s creditors. I further find in the alternative it was to hinder or delay the process of making property available for division amongst the transferor’s creditors which in the present case where the Plaintiffs in the County Court proceedings. I am therefore satisfied that the appropriate proof has been established under s.121(1)(b) without there being a need to rely upon s.121(2).
I accept the submissions made for and on behalf of the Applicant that the legal advice given by Mr De Marco to the Respondent and the Bankrupt was not genuine advice which would normally be given to parties contemplating separation and pursuing a claim under the Family Law Act. There was no realistic attempt to properly advise the parties as to a potential conflict, no file open, no file notes kept, no proper analysis of the background of the parties including the fact that the property was introduced into the marriage by the Bankrupt and otherwise no attempt to legitimately and appropriately analyse the financial circumstances of the parties in a way that would lead to professional advice. In any event the circumstances of the living arrangements of the parties and the vague nature of the separation at the time enables me to conclude that in fact there was no separation of a kind that would lead to a conclusion that for the purpose of the Family Law Act the parties had lived separately and apart and that the marriage had irretrievably broken down at the relevant time. To therefore make arrangements for the disposition of property was clearly inappropriate and in my view the use of the marital situation to somehow seek to justify the payment of the proceeds of the sale to the Respondent should therefore fail.
It will be clear from my findings that I am otherwise satisfied that the Respondent has failed to establish that he is able to rely upon any of the provisions found in s.121(4) of the Bankruptcy Act which include establishing that the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property, that the transferee did not know that the transferor’s main purpose in making the transfer was the purpose described in paragraph 1(b) of s.121 and the transferor could not reasonably have inferred that at the time of the transfer the transferor was or was about to become insolvent. In my view it is clear that the Respondent was well aware of the pending insolvency as a result of the significant County Court claim and has failed to establish consideration and indeed in the circumstances it is clear he received a share of the property to which he was then not entitled in circumstances where I am not satisfied the marriage had irretrievably broken down and that any property settlement was appropriate. Nor am I satisfied that the evidence concerning the alleged contributions by the Respondent could be a proper basis upon which this Court could make a finding of consideration as that evidence was extremely vague and unhelpful and based upon instructions from witnesses who in the circumstances were not able to produce precise and reliable material which would form

a proper basis for drawing a conclusion in the Respondent’s favour concerning consideration.
It is appropriate therefore having regard to the reasons that I make the orders sought in the application in relation to s.121 of the Bankruptcy Act as follows:-
IT IS DECLARED THAT
(1)The disposition effected by transfer of the amount of $55,800.06 on 25 March 1994 from the trust account ledger of solicitors De Marco & Co. standing to the credit of the Bankrupt to the trust account ledger of solicitors De Marco & Co. standing to the credit of the Respondent is void as against the Applicant pursuant to s.121 of the Bankruptcy Act 1966.
IT IS ORDERED THAT
(2)The Respondent pay the Applicant the amount of $55,800.06.

I certify that the preceding fifty-three (53) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 7 October 2003